Economy

Nov 14, 2017

Shareholder dividends v real investment: RBA picks a winner

Are shareholders and ticket clippers a weight on effective investment in the economy? The Reserve Bank seems to think so.

Glenn Dyer and Bernard Keane

Crikey business and media commentator / Politics editor

RBA

One of the tenets of contemporary capitalism is that when it comes to capital, companies can’t be trusted -- that shareholders know better, especially when it comes to handling and investing the cash that companies generate. Shareholders should be continually rewarded through dividends and share buybacks -- it's called capital management and the mere mention of the phrase in a company’s statements (a special dividend or capital return) can send the shares higher, while a noted reluctance to engage in the process can send shares sharply lower in a matter of hours.

In Australia, we have the added drive of fully imputed dividends to make capital management even more appealing, and a $2.3 trillion pot of gold in our superannuation system. That makes for an attractive target for investment managers, analysts brokers, investment bankers, accountants and all sorts other fee merchants and coupon clippers -- along with the corporate executives whose remuneration is linked to share prices they can goose with a share buyback.

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3 comments

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3 thoughts on “Shareholder dividends v real investment: RBA picks a winner

  1. Graeski

    Yep. I reckon this idea has less chance of getting off the ground than a lead balloon.

  2. Amark

    Plenty of examples of companies wasting billions of dollars that would have been better off in shareholders hands

  3. [email protected]

    Buybacks are wonderful for senior management. They drive up share prices and trigger huge performance bonuses. Investment in the business can be left to the next management.

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